Daily Deduction

from the Tax Policy Center

What’s Love Got to Do with It? Not Much, in Congress

By :: July 31st, 2014

The Senate won’t “Bring Home Jobs…” at least not through the bill that would have denied tax deductions for costs of moving corporations out of the country. The Bring Home Jobs Act needed 60 votes to pass but received only 54.

The House GOP may vote to put the estate tax to death. They’ve been trying to repeal the estate tax for over a decade, and after the August recess, they may try again. House Ways & Means Chair Dave Camp doesn’t believe “death should be a taxable event.” TPC notes that the estate tax is the most progressive federal tax: Estates of people in the top 0.1 percent of the income distribution paid more than half of all estate taxes in 2011.

At least everybody loves the EITC, through President Reagan may not have loved it as much as some think. The Earned Income Tax Credit supports work and strengthens the safety net. And, unlike the estate tax, it enjoys bipartisan support. But TPC’s Len Burman sets the record straight on President Reagan’s views on the program. Reagan is often cited as saying the EITC was the best “anti-poverty, the best pro-family, the best job creation measure” to come out of Congress. Guess what? Reagan wasn’t just talking about the EITC. He was describing the entire 1986 tax reform bill. Maybe that’s history worth repeating.

As for the game of chicken over the Highway Trust FundThe House Republicans may go home Friday and force Senate Democrats either to accept the House version of its funding patch, or chance being blamed for shutting down construction projects. Norm Ornstein of the American Enterprise Institute wonders when Congress will get past its test of wills and address the trust fund’s long-term funding structure. Congress is aware of a solid idea to wean the Fund off of the gasoline tax and rely on a mileage-based user fee. But given its current course of action, Ornstein warns that the 113th Congress could instead be “a top contender for worst Congress ever.”

But there’s a truce between a city and a healthcare giant: UPMC, a Pittsburgh-based nonprofit healthcare provider, pays no taxes on 86 percent of its property, costing the city of Pittsburgh $20 million a year. The city, under former mayor Luke Ravenstahl, sued UPMC to strip it of its nonprofit status, but the medical giant sued back in federal court, arguing that  it was singled out unfairly and denied due process. The city’s new mayor, Bill Peduto, dropped the city’s suit, and UPMC dropped its: “We decided, let’s have this conversation for the benefit of Pittsburgh. Let’s put away the guns” and work together outside the courts.

Another Illinois pharma wants to invert, but in New Jersey, one plans to stay put. Hospira, Inc., a drugmaker based in Illinois for now, may acquire the Netherlands-based medical nutrition unit of the French beverage company Danone for $5 billion. The Netherlands’ corporate tax rate is 25 percent. Merck, the US’ second-largest drugmaker, would rather buy US firms than invert. CEO Ken Frazier said, “we're trying to get Congress to look at how all US firms are at a huge disadvantage.” He’s promoting tax reform instead.

If you’re wondering for whom the Chicago bell tolls… The City Council has voted to more than double the telephone tax in order to avoid a property tax increase before the fall election. Starting September 1, the price of a land line or a cell phone in Chicago will rise by $1.40 per month. The money will be used to shore up the city’s four pension funds.

Bitcoin trading in Europe may no longer remain tax-free. The EU Court of Justice will decide whether transactions between virtual and traditional currencies are “services” under the EU’s value-added tax rules and whether those trades are tax-exempt. It will examine the case between Swedish tax authorities and a would-be online Bitcoin trader. The Swedish tax authorities want to collect the VAT on the trader’s transactions. In the US, Bitcoin is taxed as property, not currency.

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1Comment

  1. Michael Bindner  ::  4:31 am on August 1st, 2014:

    The Senate inversion bill should not pass anyway, but I think it was 60 votes to end debateand or overcome a budgetary point of order – a majority is still all that is required for passage.

    I agree with Camp that death should not be a taxable event. The taxable event should be receiving a cash (or in kind) distribution from the sale of an inherited asset – not just the capital gain – the whole amount. Of course, the GOP will no more accept this aproach than Harry Reid will accept Camp’s aproach.

    I commented on the EITC yesterday and mentioned who I would kill it, reform Social Security taxes and minimum wage levels to make it unnecessary (why should taxpayers subsidize low wage employers?) and how much to increase the Child Tax Credit and how to pay for it.

    I did not expect Congress to agree on the Highway Trust Fund – and I suspect part of it is some on the left who are holding out for a carbon tax (stop it). I don’t agree with mileage tax proposal, because it stops the tax premium on gas hogs. Just raise the tax. I suspect that the GOP thinks that the states will either make up the gap (not a bad idea really) or front the money in the expectation that they will be paid. What will really happen is that members of Congress and the Senate will be called on the carpet by state and local officials – and maybe residents, for fouling this one up. If they don’t, its a sad summer for American democracy,

    Pittsburgh is an interesting case, although I thought non-profit status as a federal and state matter, which I guess explains the lawsuits. So now we get a sweetheart deal instead? Is this good news? As for the other medical firms, I think inversion is the curse on the Congress for not getting things done on tax reform or on simply banning firms form incorporating in any place besides where the CEO operates day to day. I suspect there was rumor of such a proposal and that gave the investment bankers an excuse to earn their fees. As far as tax reform, I am absolutely not in favor or doing corporate reform without personal reform – and consumption taxes should be involved – which means it won’t happen any time soon.

    In Chicago, I believe an income tax should be raised to pay for penions, although if the pensions are for teachers and public safety personnel, then if these functions are funded by the property tax then the property tax should go up. While I could see the phone tax increasing to deal with excess costs from digging up the streets to lay wire, pension payments do not compute.

    The Bitcoin affair in Europe should be instructive to the IRS – as well as to Congress – who should at least have hearings on this issue again in the context of VAT taxation. The US is the stand-out on VAT but that is because we love our cheap importa and seem to hate our workers. Pity.